The impact of the Covid-19 pandemic will have a profound and lasting on the way that manufacturers, suppliers and partners operate moving forward. Which lessons we should learn from this outbreak is discussed by Michael Ackers, Director of Business Development at Sanmina.
Looking back over the last decade, this has included the devastating impact of severe flooding when a tsunami hit Japan in 2011 and more recently, the 2018 materials shortage. However, it is clear today that the impact of the Covid-19 pandemic will have a profound and lasting on the way that manufacturers, suppliers and partners operate moving forward. Most specifically because of the uniqueness presented by this pandemic, it continues to emerge in different regions, impacting both business continuity and the health and safety of workers.
When Covid-19 first emerged at the end of 2019, day-to-day supply chain activities were thrown into turmoil. The delivery of materials was stretched from 5 to 15 days in suppliers’ manufacturing lead times due to government enforced lockdowns across different regions and the grounding of flights. Freight capacity was also literally cut in half during the first few months of the pandemic.
To compensate, OEMs had to pay expensive premiums in order to ensure products and materials were delivered on time. EMS providers with strong supplier relationships were able to find workarounds to get parts delivered during the early months of the pandemic, but as regional lockdowns ensued and increased, these businesses were subsequently impacted by reduced customer demand.
Time to Improve Supply Chain Resilience
One aspect that the Covid-19 pandemic has presented is an opportunity to re-evaluate the ‘old way’ of working. Now is the time to reassess and determine how the supply chain can work differently to meet sourcing challenges most effectively in the future. Areas to consider include:
Closer Collaboration – Historically, many organisations in the supply chain have worked too much in silo. This needs to change, with OEMs that can work closely with partners, suppliers and their own customers to thrive in the future. Embedded relationships facilitate faster decision-making, which consider multiple factors during scenario planning exercises that can safeguard the negative impact of unexpected events.
During the peak of the first Covid-19 wave, Sanmina had weekly calls with suppliers to reserve capacity for components, so that parts could be shipped earlier in order to meet production requirements. Our suppliers understood our needs and the importance of delivering parts so that we could deliver what our customers required. Throughout the most critical times of the pandemic, they were able to meet our demand fluctuations.
Multi-Regional Manufacturing – While moving or setting up operations in a new region or regions comes with significant cost, history has shown that relying on a single location actually increases risk due to unexpected local developments or geo-political factors. OEMs should integrate medium-term and long-term priorities into their business models in order to develop the right multi-regional approach.
For OEMs with a large customer base in Europe, moving the majority of production to cost-effective areas of Europe may make sense to shorten the supply chain and provide a strong foundation that can withstand major events such as Covid-19. Close proximity to suppliers and EMS providers allows OEMs to apply more flexibility and control during any fast-changing situations that may arise.
Security of Supply – Everyone wants to have stock immediately and as cheaply as possible, but there are inevitably trade-offs when unforeseen events such as a global pandemic occurs. Because current forecasts lack visibility, OEMs should consider sourcing for the long term, in contrary to current Just in Time manufacturing models. One scenario to reduce risk would be to establish a regional operation with strategic stores close to the customer base, combined with the appropriate multi-sourcing of parts that spreads business across multiple approved vendors.
Flexible Product Designs – OEMs must look at the big picture and design products for all aspects of manufacturing, test and procurement, including factoring in supply chain constraints. This requires input from suppliers and contract manufacturers on the availability of materials, costs and any regional factors that could impact operations. Considering more pricing options during the design phase of a product makes it easier to consider alternative components or materials. Trying to make adjustments to a product later down the road only allows for around 15 % of the product price to be altered.
Focus on Total Cost of Ownership – Instead of focusing on product price alone, it is important to understand the entire product lifecycle in order to accurately understand volume expectations. As well as price, factors to consider include component lead times, manufacturing cycle times, the flexibility of suppliers to deliver parts within the lead time, lot size and transit time.
Digital Transformation – In scenarios where physical meetings are impossible, leveraging digital platforms, unified communications and the cloud for improved visibility, transparency and real-time data on supply chain interruptions is crucial. In just a few clicks, key stakeholders can access information from across the entire supply chain, all the way down to raw materials. With one IT and quality management system connecting different regions, businesses can benefit from a bird’s-eye view into inventory and production.
Vital business practices such as factory tours and supplier selections can also take place virtually, with interaction and negotiations in real time to conduct business safely and efficiently. By implementing a cloud-based manufacturing execution system (MES), businesses can leverage collaborative product design and development with EMS providers, as well automate and monitor factory operations.
Quality and efficiency during production can also be enhanced by utilising the cloud, with pre-programmed production parameters automatically communicated in real-time between machines and the cloud. Real-time alerts can also be immediately sent to key personnel when errors or inconsistencies are identified for fast and data-based decision making. The history of every component, production step and worker activity for each product is also automatically stored and easily accessible from the cloud, ensuring traceability for highly regulated products.
Adapting to Customer Needs
During unexpected events such as the Covid-19 pandemic, it is the OEMs that must consider all inputs from across the supply chain and have access to suppliers that can meet immediate requirements that enable them to deliver products on time. The OEMs that ‘win’ will be those that have an intimate understanding of what their customers want, and continuously adapt their strategy in order to rapidly meet these needs. Relying on technology or the innovative nature of a product is no longer enough of a competitive advantage; speed and quality of customer service is key.